How Canadian Entrepreneur Yona Shtern Built Beyond The Rack to a $200 Million Business: Part I

Yona Shtern surveys Beyond The Rack’s sprawling 180,000 square feet Montreal headquarters. It almost seems like a few of the 450 employees whiz by without noticing him.

“Sometimes I get the, ‘so what do you do?’” jokes Shtern.

Perhaps he prefers it that way. The company that Shtern built up over four years with business partner Robert Gold has forged a culture around responsibility.

“We have 25-year-old kids running departments with 50 people because they’ve demonstrate that they can do it,” said Shtern.

Today the fashion e-commerce giant stands at over 9.5 million members and is looking towards $200 million in sales this year. This is the story of how Shtern and Gold went from sitting in a coffee shop to running one of the most successful Canadian startups to date.

Referring to the well-rounded UFC fighter Georges St. Pierre, David Nault of iNovia Capital calls Shtern “the GSP of our ecosystem.” “Yona Shtern has that whole package,” said Nault.

Gold calls his business partner of 12 years the most dynamic person he’s ever met: “His ideas are so innovative and so ahead of their time.”

But before Shtern wanted to build businesses he wanted to write the next great American literary classic. He graduating university with an English lit degree but soon found himself copywriting, joining cosmetics retailer Avon for nearly a decade. After a brief stint in market research and data analysis with luxury goods retailer Saks Fifth Avenue, he joined Fido in 1999 as founding chief marketing officer. Fido was still a startup and it was Shtern and his team who came up with all those cute dog advertisements that resonated so well with the wireless crowd.

Time spent at the three brands taught Shtern the value of crafting a customer experience, and “not trying to be all things to all people.”

“Consumers have very different expectations of what they want you to be and I think more than anything the first couple years [at Beyond The Rack] we spent a lot of time figuring out who we needed to be,” said Shtern.

The entrepreneurial persona was likely entrenched after Shtern ended a year stint at My Virtual Model in 2003, an online plugin that allowed users to create an avatar for fashion e-retailers. “I knew after that I had to run my own business,” he said. “I said I would not go for a job interview again.”

And he didn’t. Together with Gold the pair completed a leverage buyout of Donald Berman Enterprises, an import business that supplies wholesale products for discount, dollar or specialty stores. The purchase kicked off a 12-year business relationship that led to the creation of Beyond The Rack.

Around that time the pair also started Gosh Marketing, an importing business. “When we first started Beyond The Rack we thought it would be a division of Gosh,” said Shtern. “It took us all of three months to realize that this was a fulltime job.”

The pair had the experience, according to Real Ventures’ John Stokes. He was the investor who later wrote them their first cheque. “When you looked at Shtern’s track record and what he’d done, he checked off many of the boxes,” Stokes told Techvibes. “Both in terms of customer acquisition and a strong e-commerce background within the fashion industry.”

The business plan was written up at a breakfast spot on Monkland Avenue in Montreal, recalls Shtern. At the time similar models taking advantage of limited-time flash sales were gaining success both in the US and Germany. Could the same model be done effectively in Canada?

Building a successful e-commerce business presented a chicken and egg dilemma. Consumers want access to great selection and pricing and the only way to offer that is by offering brand partners volume. If they could drive volume they could attract those brands, which would theoretically bring back consumers in greater numbers. Shtern and Gold needed money. About $1 million to be precise.

Stokes agreed to write the first cheque worth $150,000. The pair was close to an agreement with iNovia Capital for somewhere around $500,000, but the deal fell through. (iNovia later invested in one of the company’s four subsequent funding rounds totaling close to $60 million).

“When they first came onto our radar it was very early and to be honest we were unsure about the opportunity,” said Nault. “Should we have invested earlier? Absolutely. But we think they’re building a massive company and in the end we think we’ll be in a winning position.”

Having already declined another offer from a few Toronto investors, Shtern and Gold were running out of money. Beyond The Rack was set to fail if not for a “Hail Mary” pass in the form of a plane ride to Zurich.

Beyond the Rack is a private shopping club for women and men who want designer brand apparel and accessories at prices up to 80% off retail. We obtain authentic designer merchandise and provide it exclusively to our members through limited-time events. Each event starts at a specific time and typically lasts only 48 hours. After each event ends the merchandise is no longer available. Members...
more